Artisanal miners hunt for rubies as they sift through gravel at dam near Gemfields Group's ruby mine near Montepuez in Mozambique, on June 14 2018. Picture: GETTY IMAGES/ MATTHEW HILL
Artisanal miners hunt for rubies as they sift through gravel at dam near Gemfields Group's ruby mine near Montepuez in Mozambique, on June 14 2018. Picture: GETTY IMAGES/ MATTHEW HILL

Precious-stone producer Gemfields said on Friday its net profit fell 22% to $12.4m in its six months to end-June, largely due to lower quality of production at its Montepuez ruby mine (MRM) in Mozambique.

Revenue fell 13% to $88.9m while headline earnings per share fell in rand terms, but remain unchanged at USD1c for the period, the company said in a statement.

Gemfield’s two main operating assets are MRM and the Kagem emerald mine in Zambia, in which it holds 75% of each.

MRM’s revenue fell 30.3% to $50m, largely as a result of higher quantities of lower quality rubies and corundum put on auction. The average achieved at auction fell to $51.99 per carat in the period, from $122.03 previously, Gemfields CFO David Lovett said in the statement.

Gemfields chair Brian Gilbertson said on Friday it was common to experience volatility in grades and quality of gemstone production, adding that “our team remains confident that premium grade ruby production will improve from the muted levels experienced during the first half of the year.”

Revenue at its jewellery business, Fabergé, fell 44% to $3.9m, Gemfields said, largely as a result of the timing of sales.

Kagem’s two emerald auctions generated $33.2m, a 57% increase over the prior period as a result of a larger quantity of higher quality gems put on auction.

The company, however, said that new Zambian export duties levied on emeralds continued to hamper its cash flow at Kagem — to the tune of $5m during the period.

Zambia had implemented a 15% export duty earlier in 2019, which along with a 6% mineral tax, meant that Kamem was paying 21% of its revenues to tax authorities.

Gemfields also agreed to a $7.4m settlement with British law firm Leigh Day in December 2018 over alleged human rights abuses at MRM. The company said on Friday it believed it would have prevailed at trial, but was unlikely to have recovered substantial legal costs.

The company has established an independent operational grievance mechanism at the mine, and the settlement was on a no-admission-of-liability basis.

The company’s share price was unchanged at R1.61 on Friday, having lost 10.56% so far in 2019.

gernetzkyk@businesslive.co.za